Electricity Invercargill Ltd - · PDF fileElectricity Invercargill Limited ANNUAL REPORT 2017 1 About Electricity Invercargill Ltd Electricity Invercargill Ltd (EIL) is one of the

Electricity Invercargill LtdANNUAL REPORT 2017

Electricity Invercargill Limited ANNUAL REPORT 2017

Lorneville - Dacre RdLorneville

Makarewa

ContentsAbout Electricity Invercargill Ltd 1

Our Investments 2

The Year in Review 4

Operational Performance 4

Regulatory Environment 6

Financial Performance 6

Acknowledgements 6

Our Community 7

Asset Management Plan Update 7

Supporting our Community 7

Directors’ Profiles 8

Directors’ Report 9

Approval by Directors 11

Financial Information 12

Statement of Service Performance 12

Statement of Financial Performance 13

Statement of Comprehensive Income 14

Statement of Changes in Equity 14

Statement of Financial Position 15

Statement of Cash Flows 16

Notes to the Financial Statements 17

Audit Report 35

Registered Office251 Racecourse RoadPO Box 88Invercargill 9840New ZealandTelephone: 03 211 1899Email: [email protected]: www.eil.co.nz

Principal BankersWestpac Banking Corporation

AuditorsNathan Wylie, PricewaterhouseCoopers, Christchurch on behalf of the Office of the Auditor-General

SolicitorsBuddle Findlay, ChristchurchAWS Legal, Invercargill

PublishersA D Design and Craigs Design & PrintISSN: 1172-0832 (Print)ISSN: 2463-3372 (Online)

Directory Map of EIL Area

Front cover: Murray Cunningham, PowerNet.

Electricity Invercargill Limited ANNUAL REPORT 2017 1

About Electricity Invercargill LtdElectricity Invercargill Ltd (EIL) is one of the best-performing networks in New Zealand on the key measures of reliability and efficiency (Commerce Commission).

Formed in 1991, EIL is owned by the

Invercargill City Council through its

subsidiary company, Invercargill City

Holdings Ltd (ICHL). The network has

provided power to Invercargill since 1905

under different names, most notably

as the Invercargill Municipal Electricity

Department. ICHL has a 100 percent

ownership of EIL and receives an annual

dividend.

EIL supplies 17,377 customers - 90 percent

of them residential - through its electricity

network in Invercargill City and the Bluff area.

The foresight of EIL’s management and

directors to underground most of the

network over a 45-year period from the late

1960s makes it one of New Zealand’s most

reliable networks. This farsighted vision

continues today with EIL’s commitment to

reduce the overall age of its network and

continuously improve its assets to ensure

safety, efficiency and reliability.

The Regulatory Value of the EIL network assets is $75 million. This includes 665km of predominantly underground cables, some overhead lines and 444 distribution transformers with a capacity of 149MVA.

In 2015, EIL and The Power Company Ltd (TPCL) purchased a 50 percent interest in the Southern Generation Ltd Partnership (SGLP), which owns the Mt Stuart wind farm near Lawrence and the Flat Hill wind farm at Bluff. In 2016, SLGP also purchased the Aniwhenua hydro-electric power station in the Bay of Plenty.

EIL contracts PowerNet Ltd (PowerNet) to manage, operate, upgrade, construct and maintain its network and metering assets. PowerNet’s costs are recovered through a charging regime on capital and maintenance work and an agency fee for management services.

PowerNet acts as agent for EIL and charges line and metering charges to electricity retailers, pays transmission costs and passes the revenue and expenses through to EIL. The revenue provides a return on investment to EIL and recovers EIL’s overheads, depreciation and operating costs.

Other revenue is derived from the capital contributions of customers connecting new installations to the network, the commercial returns from the company’s investments in the OtagoNet Joint Venture (OJV), Electricity Southland Ltd (ESL) and PowerNet, as well as the new generation assets EIL owns with TPCL and Pioneer Generation Ltd.

EIL Statistics as at 31 March 2017

Connected consumers 17,377 Residential 15,244 Industrial 127 Commercial 2,006

Network length 665km

Consumer density 26.1 consumers/km

Number of distribution transformers 444

Distribution transformer density 224.2kVA/km

Maximum demand 63MW

Total energy conveyed 268GWh

Regulatory value $75 million


PowerNet LtdIn a joint venture with TPCL, EIL has a 50% shareholding in electricity asset management company, PowerNet.

EIL and TPCL established PowerNet in 1994 to achieve economies of scale through integrated network management. PowerNet is contracted to manage the EIL network—primarily its capital and maintenance works programme—and its metering assets.

Since its inception, PowerNet has led the way in electricity network management and currently manages assets with a Regulatory Value of $564 million. It is New Zealand’s fifth largest electricity asset management company.

PowerNet’s performance is judged by the value and efficiency of its network asset management and business development.

PowerNet operates a local 24-hour, 7-day a week, System Control facility that closely monitors and controls network operations and provides a faults call centre service.

Electricity Southland Ltd (ESL)Electricity network asset company, Electricity Southland Ltd (ESL), is based in Central Otago and was established in 1995 by EIL and TPCL. ESL’s assets total nearly $16 million. The network continues to expand rapidly as the Queenstown Lakes region develops at pace. This growth is mainly due to new customer connections at the Shotover Country Subdivision, Lakes Edge Subdivision, Remarkables Park, Shotover Park Development, Bridesdale Farm, Hanley’s Farm and the Northlake Development in Wanaka.

OtagoNet Joint Venture (OJV)OJV was formed in 2002 after the purchase of electricity network assets from the shareholders of the consumer co-operative company, Otago Power Services Ltd (OPSL).

OJV has 14,912 customers spread over a vast area of coastal and inland Otago from Shag Point in the north east, through to St Bathans and south to the Chaslands. OJV has a Regulatory Value of $161 million.

OJV is jointly owned by EIL (24.9%) and TPCL (75.1%).

Our Investments

L/R: Jordan Coutts, Andrew King and Paul Barclay (PowerNet) lifting the new switchgear into place at ASB House, Invercargill.


Southern Generation Ltd Partnership In April 2015, EIL joined with TPCL and Pioneer Energy Ltd to create the new Southern

Generation Ltd Partnership (SGLP). The partnership owns two wind farms – Mt Stuart

near Lawrence and Flat Hill near Bluff.

In April 2016, the partnership also acquired the Aniwhenua hydro-electric power station

on the Rangitaiki River in the Bay of Plenty. This asset, coupled with a long-term supply

agreement to a power retailer, adds asset value to the EIL balance sheet. SGLP is also

exploring further opportunities in hydro-electricity.

This investment and diversification has been a significant strategic development for EIL.

The total value of SGLP assets is $150 million.

The generation output of the two wind generation sites and Aniwhenua hydro-electric

power station is assessed at 174GWh per annum, with Mt Stuart contributing 22GWh,

Flat Hill 25GWh, and Aniwhenua 127GWh. Wind and hydro generation are clean, green

renewable energies that fit with EIL’s other strategies, including the transition from fossil

fuels to renewables where possible.

The total output from SGLP generation sites is equivalent to the amount needed to

power 20,000 homes.

This renewable generation in Southland, Otago and Bay of Plenty is managed by our

partner Pioneer Energy Ltd. EIL and TPCL jointly own 50 percent of SGLP through our

joint venture, Roaring Forties Energy Ltd Partnership (RFELP). Pioneer Energy Ltd owns

the remaining 50 percent.

The return on investment for RFELP makes this investment by EIL into distributed

renewable energy generation a key strategic asset.

Our Investments continued

Asset Investment $205.4 million

Electricity Invercargill Ltd$86.4M (42%)

OtagoNet JointVenture

$49.6M (24%)

Advanced Metering $3.6M (2%) PowerNet

$29.5M (14%)

Southern Generation Ltd Partnership

$36.3M (18%)

Electricity Invercargill Group – Asset BreakdownThe investment make-up by asset investment and investment type clearly illustrates the EIL strategy of diversification being achieved within the electricity sector. Historically EIL’s predominant investment was the the Invercargill and Bluff network. That investment now makes up 42 percent of EIL’s investment portfolio. Furthermore, while electricity distribution as an investment type comprises the majority (65 percent), there is significant diversification into electricity generation. This diversification is important in order to secure a long-term, sustainable investment return.

Investment Type $205.4 millionAdvanced Meters

$3.6M (2%)

Electricity Distribution $136M (66%)

Electricity Generation $36.3M (18%)

Network Management $29.5M (14%)

Southern Generation Ltd Partnership structure

Southern Generation Ltd

Partnership

Roaring Forties Energy Ltd

Partnership (50%)

Electricity Invercargill Ltd

(50%)

The Power Company Ltd

(50%)

Pioneer Energy Ltd

(50%)


Project Expenditure

Underground substation replacements $1,262,000

400V link box replacements $623,000

Distribution transformer replacements $352,000

Ring main unit replacements $318,000

Bluff line and pole replacements $298,000

New customer connections $162,000

Operational PerformanceActivity on the EIL network focuses on two key projects that ensure network reliability and safety.

Work continued this year to gradually replace Invercargill City’s 13 underground substations (housing switchgear, distribution transformers and low voltage distribution boards). This is a three-year project that began in 2015. In 2016-17, two sites were moved above ground at Deveron and Herbert streets. A further four substations will be replaced next financial year.

The relocation above ground of 400 volt underground link boxes in Invercargill’s CBD continues. Thirteen underground link boxes were replaced in 2016-17, with a further 40 scheduled for replacement over the next two years.

The total capital spend on the network in 2016-17 was $3.8 million and a further $1.6 million was spent on maintenance. Other ongoing work includes the replacement of distribution transformers and ring main units that are nearing the end of their life. In the Bluff area, 11kV lines have been replaced and poles renewed to maintain supply to the Bluff community and South Port.

New customer connections on the EIL network remained at a moderate level during the 2016-17 year.

Expenditure on the EIL network

The Year in Review

The 750kVA transformer being lifted out of underground substation 519 (corner of Spey and Deveron streets, Invercargill).


EIL’s normalised SAIDI of 13.47 minutes was well under the supply quality limit of 31.13 minutes while normalised SAIFI at 0.29 was also well under the supply quality limit of 0.77. This is because most of the network is underground and it is also due to recent network automation initiatives.

System Average Interruption Duration Index (SAIDI)

The average total in minutes each customer connected to the network is without supply each year.

SAIDI

Planned 4.42

Unplanned 9.05

Quality Limit 31.13

Actual 13.47

Unplanned Outages (Normalised)

Cap/Limit

Planned Outages

35

30

25

20

15

10

2

0

Aver

age

Out

age

Dur

atio

n (M

inut

es/IC

P)

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

SAIFI

Planned 0.03

Unplanned 0.26

Quality Limit 0.77

Actual 0.29

Unplanned Outages (Normalised)

Cap/Limit

Planned OutagesSystem Average Interruption Frequency Index (SAIFI)

The average number of times each customer connected to the network is without supply each year.

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

Aver

age

No.

Out

age

(Inte

rrup

tions

/ICP)

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

The Year in Review continued


Regulatory EnvironmentEIL continues to support PowerNet’s work in the regulatory environment via the Electricity Networks Association’s working groups. These groups proactively provide industry direction in areas that include the sectors two regulators, the Commerce Commission and the Electricity Authority. Issues include tree regulations, distribution pricing changes, input methodologies, transmission pricing issues and low fixed charge regulations. It is with the low fixed charge regulations that EIL and the energy sector have serious concerns. The legislated tariff option is providing significant cross subsidies across our consumer groups and promotes inefficient investment in expensive alternative generation compared with lower cost generation options. The regulated tariff is subsidising inefficient investment which is not in the long-term interest of consumers or New Zealand.

As in previous years, the industry continues to work proactively with the Commission and the Electricity Authority to ensure regulations are targeted, efficient and effective.

Financial PerformanceOperating surplus after tax was $7.030 million, 11.9% lower than the $7.976 million target due to a combination of factors. The electricity consumption across all networks was impacted by the unseasonally warm weather during the first half of the year. This reduced the underlying line charge revenue, making it lower than both last year and the targeted result. Also contributing to the result, from 1 April 2016, the Group equity-accounted its share of profits from the PowerNet Ltd Group at 25%. The change to 25% is consistent with the economic benefits the Group receives based on PowerNet’s dividend policy. This change has contributed to the operating surplus EBIT% financial performance measure being below target.

Offsetting the above, the Group via its 25% interest in the Southern Generation Ltd Partnership has completed the acquisition of assets relating to the Aniwhenua hydro-electric power station. This investment provided above target income in 2017, partially offsetting the reduced line charge income. This is a positive contribution to the cash flow and reflects the importance of diversification in the uplift of the Group’s net surplus.

31 March 2017 31 March 2016 $000 $000

Operating surplus before tax 8,875 9,924

Less taxation expenses (1,845) (2,157)

Net surplus after taxation 7,030 7,767

The Year in Review continued

AcknowledgementsEIL’s directors thank all those who contributed to the company’s continued success in 2016-17.

The directors particularly acknowledge the continued support of ICHL directors (as shareholder)

and appreciate their support for our investments in OJV, the SGLP and other assets.

In our partnership with TPCL we share key investments. Our relationship with TPCL is of great

importance to us and we thank TPCL’s directors for their enduring support.

The directors also offer their appreciative thanks for the hard work and commitment of the high-

quality staff and management at PowerNet. Their work is critical and instrumental to maintaining,

managing, and growing our safe, reliable and efficient network and generation assets.


Our CommunityAsset Management Plan UpdateThe EIL asset management plan update (AMP) outlines how network assets are managed to provide a safe, efficient and reliable electricity supply and service to Invercargill and Bluff communities over the next 10 years. The plan provides the governance and management framework that EIL works to.

The maximum demand on the network has increased about 0.4 percent per annum over the last 20 years, with energy increasing by about 0.2 percent per annum. The network will be upgraded to meet expected growth.

The focus over the short to medium term is to complete the following initiatives:

• Relocation of underground distribution substations and underground link boxes to above ground.

• Continued seismic strengthening work at zone and distribution substations.

These projects will contribute to maintaining network safety, efficiency and reliability.

Additional work over the 10-year planning period to maintain service levels will include:

• Improving safety at zone substations and on the distribution network.

• Upgrading areas to maintain acceptable voltages.

• Renewing unsafe and poorly performing assets.

• Meeting customer and distributed generator requests for new connections.

• Improving efficiency of the network by upsizing assets that have high losses and exchanging overloaded distribution transformers with currently installed under-utilised units.

• Extending remote monitoring and control to distribution devices.

Renewals of transformers, ring main units and pillar boxes are expected to create a significant ongoing cost. Capital expenditure each year varies with $6.2 million in 2016-17, then between $3.1 million and $6.0 million over the remaining 10-year planning horizon.

EIL continues to give customers the opportunity to have their say and provide input into the company’s plans. It does this through an annual telephone customer survey and interviews with some of its larger commercial customers. It also invites public comment on the asset management plan.

The company works closely with customers and developers in planning new connections to the EIL network, to understand their plans and then feed these back into asset management planning.

These customer interactions mean EIL better understands the needs of stakeholders and their feedback benefits network planning.

The EIL Asset Management Plan can be viewed at: www.eil.co.nz

Supporting our Community

First Aid EquipmentDuring the year the EIL directors donated an automated external defibrillator (AED) to Bill Richardson Transport World. The AED is installed at a location inside the building that is accessible to the public.

Southland Warm Homes Trust The annual contribution by EIL to support the Southland Warm Homes Trust (SWHT) is $125,000. EIL supports PowerNet’s administration services to the SWHT.

The SWHT, in conjunction with the Energy Efficiency and Conservation Authority (EECA), has carried out more than 6,000 insulation and heating retrofits in Southland and West Otago homes since 2008.

Funding under EECA’s Healthy Homes Programme is targeted at those who are likely to benefit most from having their homes insulated; low income households with high health needs, including families with children and the elderly.

On 1 July 2016, central government made changes to EECA’s funding and narrowed the eligibility criteria for the Healthy Homes Programme to apply to landlords with eligible tenants only (the Healthy Homes Rental Programme). The criteria ties in with the new Residential Tenancies Act minimum insulation requirements for rental properties.

To be eligible, rental homes must have been built prior to 1 January 2000, the tenants require a community services card and those with high health needs must be referred through an approved service. Landlords with eligible tenants are required to make a 50% contribution towards the insulation cost, with EECA providing 25 percent and the SWHT providing the remaining 25 percent from community funding.

In addition to the EECA/SWHT programme, SWHT and service provider Awarua Synergy offer a subsidy of up to $2,000 for households to install insulation.


Directors’ Profiles

Thomas Campbell

Sarah Brown

Joe O’Connell

Thomas Campbell BSc (Metallurgy) ChFInst DTom is chair of Electricity Invercargill Ltd and a director of Southern Generation Ltd Partnership, a former managing director of Comalco and general manager of the Tiwai Smelter. He now works as an independent company director.

His directorships include Todd Corporation and PowerNet, as well as being chair of both the Southland Regional Development Strategy and the Energy Efficiency and Conservation Authority (EECA).

Tom is a chartered fellow of the Institute of Directors.

Karen ArnoldKaren joined the boards of Electricity Invercargill Ltd and PowerNet in November 2016.

She is a former multi award-winning investigative journalist and is a second-term Invercargill City Councillor.

Karen is chair of the council’s Urban Rejuvenation Committee, deputy chair of the Hearings Committee and a trustee of both the Southland Warm Homes Trust and the Invercargill Recreation and Sports Trust.

Karen completed the Institute of Directors’ Certificate in Company Direction in May 2015.

Sarah Brown LLB BASarah joined the board of Electricity Invercargill Ltd in November 2013.

She is the project manager for the Southland Regional Development Strategy, and was council chair of the Southern Institute of Technology from 2011 to May 2017. Sarah has been a director of PowerNet since April 2015.

Sarah is a member of the Institute of Directors.

Alan (Joe) O’Connell BCom CAJoe joined the boards of Electricity Invercargill Ltd and PowerNet in December 2016. He serves as a director on a number of companies and was chairman of Invercargill Airport Ltd from 2011-2016.

He has worked in many industries including transport, timber, concrete, petroleum distribution, drilling exploration, property and growing media.

Joe is a chartered accountant and a member of the Institute of Directors.

Karen Arnold

Ross Smith

Ross Smith BComRoss joined the board of Electricity Invercargill Ltd in November 2003 and is currently deputy chair. He was group managing director/CEO of SBS Bank from 1992-2014 and served as a director on three SBS Group subsidiary companies from 2001-2014.

Ross is also chair of PowerNet and is a past chair of Peak Power Services Ltd.

Ross is a member of the Institute of Directors.


Directors’ ReportThe Directors have pleasure in presenting their Annual Report and Financial Statements for the year ended 31 March 2017.

Principal ActivitiesThe principal activity of the parent entity, Electricity Invercargill Limited is the provision of electricity distribution services. The Company is a wholly owned subsidiary of Invercargill City Holdings Limited. The Group consists of Electricity Invercargill Limited, its subsidiary, joint ventures and associate companies.

Result and DistributionThe Directors report that the Group’s profit after tax and interest for the year under review was $7,030,000. A dividend of $5,700,000 has been declared payable in July and November 2017 and March 2018. The dividend will be imputed at 28%.

State of Company’s AffairsThe Directors consider the state of the Company’s affairs to be satisfactory.

DirectorsThe Directors are appointed by the Shareholder.

Directors’ InterestsThe following entries were made in the Interests Register of the Company with regard to the Directors:

General:All Directors are interested in transactions with the Company involving the supply of standard network services, on standard terms and conditions, to premises in which they may have one or more of the following interests:

(a) Owner, either alone or jointly with others.

(b) Parent, child or spouse of another person who may have a material interest in a property.

(c) Director, officer or shareholder of a body corporate which may have a material interest in a property.

(d) Trustee or beneficiary of a trust which may have a material interest in a property.

Because the interest which Directors may have in such transactions is no different in kind, quality, benefit or obligation from transactions which the Company has with other network services customers, it is not intended to list such premises or properties in the Interests Register.

Director Company Position

Karen Arnold

Invercargill City Council Councillor

Invercargill Community Recreation Trustee and Sports Trust

PowerNet Ltd Director

Pylon Ltd Director

Southland Warm Homes Trust Trustee

Neil Boniface

Cancer Society of New Zealand Director

Electricity Southland Ltd Director

Invercargill City Council Councillor

Invercargill Venue & Events Management Ltd Director

OtagoNet Joint Venture Member, Governing Committee

OtagoNet Ltd Director

OtagoNet Properties Ltd Director

Otago Southland Division of the Chair Cancer Society


Pylon Ltd Director

Pylon 2 Ltd Director

Southland Driving School Director

Southland Warm Homes Trust Trustee

Sarah Brown


Pylon Ltd Director


Roaring Forties Energy GP Ltd Director

Southern Institute of Technology Chair

Southern Lakes Education College Ltd Director

Southland Regional Development Strategy Project Manager Thomas Campbell

Energy Efficiency & Conservation Authority Chair


Pylon Ltd Director


Roaring Forties Energy GP Ltd Director

Southern Generation GP Ltd Director

Southland Regional Development Strategy Chair Governance Group Todd Corporation Ltd Director Todd Offshore Ltd Director Venture Southland Director


Director Company Position

Alan (Joe) O’Connell

AJO Management Ltd Director K G Richardson and Sons Ltd Association KGR Properties Ltd Association Log Logistics Ltd Director Log Marketing New Zealand Ltd Director McNeill Drilling Company Ltd Association Niagara Sawmilling Company Ltd Association O’Connell Holdings Ltd Director OKC Holdings Ltd Director PowerNet Ltd Director Property South Ltd Director Pylon Ltd Director R Richardson Ltd Director R W Transport Ltd Director Southfuels Ltd Director TNZ Growing Products Ltd Director

Darren Ludlow Invercargill City Council Deputy Mayor Invercargill City Charitable Trust Trustee Invercargill Community Recreation and Trustee Sports Trust PowerNet Ltd Director Pylon Ltd Director Pylon 2 Ltd Director Radio Southland Manager Southland Art Foundation Trustee Southland Museum and Art Gallery Trustee

Ross Smith Electricity Southland Ltd Director OtagoNet Joint Venture Member, Governing Committee OtagoNet Ltd Director OtagoNet Properties Ltd Director Peak Power Services Ltd Chair PowerNet Ltd Director Pylon Ltd Director Pylon 2 Ltd Director

Directors’ Report


Directors’ Report

Approval by DirectorsThe Directors have approved for issue the Financial Statements of Electricity Invercargill Ltd for the year ended 31 March 2017 on pages 12 to 34.

Thomas Campbell Ross Smith Chair Director

For and on behalf of the Board of Directors

29 June 2017

Remuneration of DirectorsThe following Directors held office during the year under review and were paid fees accordingly:

Neil Boniface - Chair (until 30 November 2016) Karen Arnold - Director (from 8 November 2016) Sarah Brown - Director Thomas Campbell - Director, Chair (from 1 December 2016) Darren Ludlow - Director (until 7 November 2016) Alan (Joe) O’Connell - Director (from 1 December 2016) Ross Smith - Director

Remuneration paid or due and payable to Directors for services as a Director and in any other capacity for Electricity Invercargill Limited, during the year was:

Neil Boniface $37,417 Darren Ludlow $17,367 Karen Arnold $11,519 Alan (Joe) O’Connell $9,667Sarah Brown $28,725 Ross Smith $28,725Thomas Campbell $38,392

Employee RemunerationNo employees or former employees received remuneration to the value of $100,000 or greater during the year.

DonationsThere were no donations made during the year.

Use of Company InformationDuring the year the Board received no notices from the Directors of the Company requesting to use Company information received in their capacity as Directors which would not otherwise have been made available to them.

Directors’ and Employees’ Indemnity and InsuranceLiability insurance was effected for Directors of the Company.

Accounting PoliciesThere has been no changes in the accounting policies during the year. These accounting policies have been applied on a basis consistent with those used in the previous year.

Auditor RemunerationRefer to Note 3 of the Financial Statements for Auditor remuneration.

For and on behalf of the Directors.

Thomas CampbellChair

Ross Smith Director


Statement of Service PerformanceFor the Year Ended 31 March 2017

The objectives of Electricity Invercargill Ltd for this financial year are clearly specified in the Statement of Intent, which was approved by the Shareholders. The performance targets and measures identified in the Statement of Intent, along with the performance achieved during the financial year, are detailed below. Performance Targets Target Achievement

Year Ended Year Ended Year Ended 31 March 2017 31 March 2017 31 March 2016 $000 $000 $000Financial Measures Operating Surplus Before Tax 9,768 8,875 9,924Operating Surplus After Tax 7,976 7,030 7,767

Earnings Before Interest and Tax to Total Assets (EBIT%) 7.36% 6.45% 7.42%Return on Equity % 8.93% 7.62% 8.71%Equity to Total Assets % 49.61% 49.08% 55.70% Operating surplus after tax was $7.030 million, 11.9% lower than the $7.976 million target due to a combination of factors. The electricity consumption across all networks was impacted by the unseasonal warm weather during the first half of the year. This reduced the underlying line charge revenue to be lower than both last year and the targeted result. Also contributing to the result is effective from 1 April 2016 the Group has equity accounted its share of profits from the 50% owned joint venture entity, PowerNet Ltd Group at 25%. The change to 25% is consistent with the economic benefits the Group receives based on the PowerNet dividend policy. This change has contributed to the operating surplus EBIT% financial performance measure being below target.

Offsetting the above, the Group via its 25% interest in the Southern Generation Ltd Partnership has completed the asset acquisition of the assets relating to the Aniwhenua Hydro Station. This investment provided above target income in 2017, partially offsetting the reduced line charge income. This is a positive contribution to the cash flow and reflects the importance of diversification in the uplift of the Group’s net surplus. Network Reliability PerformanceThe following results were calculated using information from the Company’s non-financial systems, which due to the manual recording processes have inherent limitations relating to the completeness of interruption data and the accuracy of installation control point (ICP) numbers included in the SAIDI and SAIFI.

System Average Interruption Duration Index (SAIDI)The average total time in minutes each customer connected to the network is without supply.

SAIDI 21.10 13.47 37.80

System Average Interruption Frequency Index (SAIFI)The average number of times each customer connected to the network is without supply.

SAIFI 0.57 0.29 0.67

The Directors have reasonable assurance that the performance data of the company is free from material misstatement and is a reliable measure of the network’s performance. However, there is an inherent risk as there is no independent evidence to verify the accuracy of the information recorded.


The accompanying notes on pages 17 to 34 form part of and should be read in conjunction with these financial statements.

Health and Safety Governance The Board continued to give priority to health and safety during the 2017 financial year and remains strongly committed to providing the governance leadership required to ensure safe work practices amongst staff and contractors working on the company’s network. Activity on the network focuses on key projects that ensure network reliability and safety. The company has become aware of the heightened level of safety risk on underground substations/confined spaces and has now reprioritised capital expenditure into safety-driven work devoted for the relocation of these substations to above the ground.

Supplementary Information (Unaudited) Achievement

2017 2016Network Statistics Length of overhead line 54 km 54 kmLength of underground cable 611 km 616 kmTotal number of interruptions 31 42Faults per 100km of line 4.44 7.90Transformer capacity MVA 149 152Maximum demand kW 63,052 66,006Energy into network GWh 268 280Total consumers 17,377 17,362

Statement of Service Performance continuedFor the Year Ended 31 March 2017

Statement of Financial PerformanceFor the Year Ended 31 March 2017

GROUP

Note 2017 2016 $000 $000

Operating Revenue (2) 20,143 20,126Other Income (2) 1,872 2,035

Operating Expenses (3) (16,379) (15,146)Finance Costs (3) (3,258) (1,956)Share of Profit of Associates and Joint Ventures (8/9) 6,497 4,865

Operating Surplus Before Taxation (4) 8,875 9,924

Less Taxation Expense - Current (4) (1,571) (2,083)- Deferred (4/13) (274) (74)

Net Surplus After Taxation 7,030 7,767



Statement of Comprehensive IncomeFor the Year Ended 31 March 2017

GROUP

2017 2016 $000 $000


Other Comprehensive Income - Revaluation 1,863 -

Other Comprehensive Income - -

Total Comprehensive Income 8,893 7,767

Statement of Changes In EquityFor the Year Ended 31 March 2017

GROUP

Note 2017 2016 $000 $000

Total Comprehensive Income Net Surplus for the Year 7,030 7,767Other Comprehensive Income 1,863 -

8,893 7,767

Distributions to Shareholders Dividend Paid/Declared (5,700) (6,200)

(5,700) (6,200)

Changes in Equity for the Year 3,193 1,567

Equity at Beginning of Year 89,119 87,552

Equity at End of Year (5) 92,312 89,119



Statement of Financial PositionAs at 31 March 2017

GROUP

Note 2017 2016 $000 $000

Equity Share Capital (5) 13,000 13,000Reserves (5) 31,567 29,804Retained Earnings (5) 47,745 46,315

Total Equity 92,312 89,119

Represented By:

Current Assets Cash and Cash Equivalents (6) 3,142 207Receivables and Prepayments (7) 2,044 2,411

Total Current Assets 5,186 2,618

Non Current Assets Investments in Associates (8) 1,569 1,554Advances to Associates 2,603 1,720Investments in Joint Ventures (9) 80,842 54,270Advances to Joint Ventures 7,760 13,430Investments in Other Entities 118 118Property, Plant and Equipment (10) 88,169 84,019Capital Work in Progress 1,849 2,279

Total Non Current Assets 182,910 157,390

Total Assets 188,096 160,008

Current Liabilities Creditors and Accruals (11) 2,697 5,137Dividend Payable 5,700 6,200Income Tax Payable 592 1,081

Total Current Liabilities 8,989 12,418

Non Current Liabilities Shareholder Advance (12) 67,825 40,500Deferred Tax Liabilities (13) 18,970 17,971

Total Non Current Liabilities 86,795 58,471

Total Liabilities 95,784 70,889

Net Assets 92,312 89,119



Statement of Cash FlowsFor the Year Ended 31 March 2017

GROUP

Note 2017 2016 $000 $000

CASH FLOWS FROM OPERATING ACTIVITIESCash Was Provided From: Receipts from Customers 22,027 21,453Interest Received 312 440Taxation Refunds 19 57

22,358 21,950Cash Was Disbursed To: Payments to Suppliers and Employees 14,435 12,549Income Tax Paid 2,080 2,355Interest Paid 3,168 1,983GST Paid/(Received) 233 (296)

19,916 16,591

Net Cash Flows From Operating Activities (14) 2,442 5,359

CASH FLOWS FROM INVESTING ACTIVITIESCash Was Provided From: Sale of Property, Plant and Equipment 9 8Sale of Shares in Associate - 4,200Dividend Received 6,235 3,121Advances Repaid by Associates and Joint Ventures 5,670 4,235

11,914 11,564

Cash Was Applied To: Purchase of Property, Plant and Equipment 5,338 7,986Purchase of additional Interest in Joint Ventures 26,325 10,588Advances to Associates and Joint Ventures 883 9,626

32,546 28,200

Net Cash Flows Used in Investing Activities (20,632) (16,636)

CASH FLOWS FROM FINANCING ACTIVITIESCash Was Provided From: Shareholder Advances Received 27,325 9,000

27,325 9,000Cash Was Applied To: Dividend Payment 6,200 5,600

6,200 5,600

Net Cash Flows From Financing Activities 21,125 3,400 Net Increase/(Decrease) in Cash and Cash Equivalents Held 2,935 (7,877)Add Opening Cash Brought Forward 207 8,084

Closing Cash and Cash Equivalents Carried Forward (6) 3,142 207


Notes to and Forming Part of the Financial Statements For the Year Ended 31 March 2017

1. Statement of Accounting Policies

Reporting Entity Electricity Invercargill Ltd is a profit oriented limited liability company, that was incorporated in New Zealand on 30 June 1991, is

registered under the Companies Act 1993 and whose registered office is at 251 Racecourse Road, Invercargill. The Company is a wholly owned subsidiary of Invercargill City Holdings Ltd. The Group consists of Electricity Invercargill Ltd, its subsidiaries and its interest in associates and jointly controlled entities (refer to notes 8 and 9).

The financial statements have been prepared in accordance with the requirements of the Energy Companies Act 1992, the Companies Act 1993 and the Financial Reporting Act 2013. The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP), and comply with the New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime (NZ IFRS RDR), and other reporting standards as appropriate for profit oriented entities.

The principal activity of Electricity Invercargill Ltd is the provision of electricity distribution services.

The financial statements were approved by the Board of Directors on 29 June 2017.

Basis of Preparation These financial statements are presented in New Zealand dollars, rounded to the nearest thousand. The accounting principles recognised

as appropriate for the measurement and reporting of earnings and financial position on a historical cost basis are followed by the Group, with the exception that certain property, plant and equipment has been revalued to fair value.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

Use of Estimates and Judgements The preparation of financial statements to conform to NZ IFRS requires management to make judgements, estimates and assumptions

that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The estimates and associated assumptions have been based on historical experience and other factors that are believed to be reasonable under the circumstances.

In particular, estimates and assumptions have been used in the following areas:

- Intangibles

- Property, plant and equipment

- Recoverable amount from Cash Generating Units (CGU)

- Joint arrangement classification

In the process of applying the Group’s accounting policies, management has made the following judgements, estimates and assumptions that have the most significant impact on the amounts recognised in these financial statements.

The Group operates extensive integrated electricity distribution networks comprising large numbers of relatively minor individual network asset components. These components are replaced over time as part of an ongoing maintenance/refurbishment programme, consistent with the Group’s approved network asset management plans. The costs associated with recording and tracking all individual components replaced and removed from the networks substantially outweigh the benefits of doing so. Management has estimated the quantities and the carrying values of components removed from the networks in each reporting period. Any errors in the estimates of such removals are corrected at the next asset revaluation, and are not considered to be material on either an annual or a cumulative basis with respect to either reported net surpluses or carrying values of the networks.

Every five years, the company obtains a valuation of their electricity distribution network, determined by independent valuers, in accordance with their accounting policy. The valuation of the Company’s electricity distribution network was performed as at 1 April 2016. The best evidence of fair value is discounted cash flow methodology. The major assumptions used include discount rate, growth rate and future cash flows. Changes in future cash flows arising from changes in regulatory review may result in the fair value of the electricity distribution network being different from previous estimates. The fair value measurement of the distribution network is categorised under Level 3 of the fair value hierarchy.


Notes to and Forming Part of the Financial Statements continuedFor the Year Ended 31 March 2017

The Group invoices its customers (predominantly electricity retailers) monthly for electricity delivery services on the basis of an estimation of usage, adjusted for the latest wash-up data available from the electricity wholesale market and certain metering data from electricity retailers. Management has made an allowance in revenue and in current assets/liabilities for any amounts which are estimated to be under/over charged during the reporting period. However, as final wash-up metering data is not available for in excess of twelve months, it is possible the final amounts payable or receivable may vary from that calculated.

Other areas where judgement has been exercised in preparing these financial statements are in relation to calculating the recoverable amounts from CGUs and the amounts of employee entitlements.

New Standards Adopted There have been no new standards adopted in the current period that have a material effect on the financial statements.

The Group is eligible and has elected to report in accordance with Tier 2 for-profit accounting standards, NZ IFRS Reduced Disclosure Regime (NZ IFRS RDR) by virtue of the fact that it has no public accountability and it is not a large for-profit public sector entity.

In adopting the Reduced Disclosure Regime framework, the Group has taken advantage of a number of disclosure concessions.

Standards or Interpretations not yet Effective Various standards, amendments and interpretations have been issued by the External Reporting Board (XRB) but not yet adopted by

Electricity Invercargill Ltd as they are not yet effective.

NZ IFRS 9: Financial Instruments (effective for annual periods beginning on or after 1 January 2018) NZ IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities.

The complete version of NZ IFRS 9 was issued in September 2014. It replaces the guidance in NZ IAS 39 that relates to the classification and measurement of financial instruments. NZ IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in NZ IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. NZ IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under NZ IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The group intends to adopt NZ IFRS 9 on its effective date and has yet to assess its full impact.

IFRS 15, Revenue from contract with customers, (effective for annual periods beginning on or after 1 January 2018) NZ IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful

information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces NZ IAS 18 ‘Revenue’ and NZ IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The group intends to adopt NZ IFRS 15 on its effective date and is currently assessing its full impact. This standard is not expected to significantly impact the Group.



Specific Accounting Policies

a) Principles of Consolidation

(i) Associates Associates are those entities for which the Group has significant influence, but not control, over the financial and operating

policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases.

(ii) Joint Ventures Joint Ventures are those entities over which the Group has joint control, established by contractual agreement. The

consolidated financial statements include the Group’s share of the joint venture entities’ total recognised gains and losses on an equity accounted basis, from the date joint control commences until the date joint control ceases.

(iii) Transactions eliminated on consolidation All significant inter-company transactions, balances and unrealised gains on transactions between group companies are

eliminated on consolidation. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the assets transferred.

b) Revenue Revenue is measured at the fair value of the consideration given for the sale of goods and services, net of goods and services tax.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and there is no continuing management involvement with the goods.

(i) Network Charges Revenue comprises the amounts received and receivable for goods and services supplied to customers in the ordinary course

of business.

(ii) Investment Income Interest income is recognised on a time-proportion basis using the effective interest method.

(iii) Dividend Income Dividend income is recognised when the right to receive payment is established.

(iv) Customer Contributions Contributions from customers in relation to the construction of new lines for the network and donated assets are accounted

for as revenue when the asset is connected to the network.

c) Finance Costs Finance costs comprise interest expense on borrowings, changes in the fair value of financial assets through the profit and loss

and impairment losses recognised on financial assets (except for trade receivables). All borrowing costs are recognised in the profit and loss using the effective interest method, unless they are directly related to the construction of a qualifying asset, when they are capitalised.



d) Property, Plant and Equipment

(i) Owned Assets All property, plant and equipment is recognised at cost less accumulated depreciation and impairment losses. The cost of

purchased property, plant and equipment is the fair value of the consideration given to acquire the assets and the value of other attributable costs including borrowing costs which have been incurred in bringing the assets to the location and condition necessary for their intended service.

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item, if when that cost is incurred it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the profit and loss as an expense as incurred.

The electricity distribution network is valued at fair value. Fair value is determined on the basis of a periodic valuation, at a maximum of every five years, based on discounted cash flow methodology. The fair values are recognised in the financial statements of the Group and are reviewed at the end of each reporting period to ensure that the carrying amount of the distribution network is not materially different from its fair value.

Any revaluation increase arising on the revaluation of assets is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense in the profit and loss, in which case the increase is credited to the profit and loss to the extent of the decrease previously charged. A decrease in carrying amount arising on revaluation is charged as an expense in the profit and loss to the extent that it exceeds the balance, if any, held in the asset reserve relating to a previous revaluation of that asset.

When a revalued asset is sold or retired the attributable revaluation surplus remaining in the revaluation reserve, net of any related deferred taxes, is transferred directly to retained earnings.

(ii) Depreciation Depreciation is charged to the profit and loss on a combination of straight line and diminishing value bases over the estimated

useful lives of all property, plant and equipment. Land is not depreciated. The primary annual rates used are:

Buildings 1.0 – 15% Straight Line/Diminishing Value Network Assets 1.4 – 15% Straight Line Metering Assets 2.5 – 6.7% Straight Line

(iii) Impairment At each reporting date the Group reviews the carrying amounts of its assets and assesses them for indications of impairment.

If indications of impairment exist, then the assets’ recoverable amount is estimated in order to determine the extent of the impairment. The recoverable amounts are the higher of fair value (less costs to sell) and value in use. In assessing value in use, the estimated future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects the market assessments of the time value of money and the risks specific to the assets involved. If the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down to its recoverable amount and an impairment loss is recognised in the profit and loss, except to the extent that the impairment loss reverses a previous revaluation increase for that asset to the extent of that revaluation increase. When the asset does not generate cash flows independent of other assets, the cash generating unit (CGU) to which the asset belongs is tested for impairment.

Goodwill is tested for impairment annually and whenever there is an indication that it may be impaired. Any impairment of goodwill can not subsequently be reversed.



e) Capital Work in Progress Capital Work in Progress is stated at cost and is not depreciated. It includes an accrual for the proportion of work completed at the

end of the year.

f ) Intangible Assets

(i) Goodwill All business combinations are accounted for by applying the purchase method. Goodwill (if it exists) has been recognised

in acquisitions of subsidiaries, associates and joint ventures. In respect of business acquisitions since 1 April 2005, goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.

In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous NZ GAAP at the transition date.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to CGUs and is no longer amortised but is tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.

Negative goodwill arising on an acquisition is recognised directly in the profit and loss.

(ii) Computer Software Under NZ IFRS computer software is classified as an intangible asset and amortised on a straight line/diminishing value basis

over its estimated useful life.

(iii) Research and Development Research costs are expenses in the year in which they are incurred. Development costs are capitalised to the extent that future

benefits (exceeding the costs) are expected to accrue.

(iv) Amortisation Amortisation is charged to the profit and loss on a straight-line basis over the estimated useful lives of intangible assets, other than

goodwill, from the date that they are available for use. The estimated amortisation rates for the current period are as follows:

Software 12.5 – 48% Straight Line

g) Taxation Income tax on the surplus or deficit for the period presented comprises current and deferred tax. Income tax is recognised in the

profit and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is recorded using tax rates enacted or substantially enacted at the balance sheet date and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.



h) Goods and Services Tax All amounts in the financial statements have been shown exclusive of Good and Services Tax, with the exception of receivables and

payables which are shown inclusive of Goods and Services Tax.

i) Operating Leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as

operating leases. Payments under these leases are recognised in the periods when they are incurred.

j) Financial Assets Where applicable the Group classifies its investments in the following categories:

Financial assets at fair value through the profit and loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.

(i) Financial Assets at Fair Value through the Profit and loss Financial assets at fair value through the profit and loss are financial assets held for trading which are acquired principally for

the purpose of selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are designated as hedges.

(ii) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active

market. They arise when the company provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet.

(iii) Held-to-Maturity Investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that

the company’s management has the positive intention and ability to hold to maturity.

(iv) Available-for-Sale Financial Assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either

designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Available-for-sale financial assets and financial assets at fair value through the profit and loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through the profit and loss’ category, including interest and dividend income, are presented in the profit and loss within other income or other expenses in the period in which they arise.



k) Financial Instruments

(i) Receivables Trade and other receivables are recognised initially at fair value. A provision for impairment of trade receivables is established

when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

(ii) Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that

are readily convertible to a known amount of cash and are subject to an insignificant amount of risk of changes in value.

(iii) Trade and Other Payables Trade and other payables are stated at fair value.

(iv) Borrowings Borrowings are recognised initially at fair value, net of any transaction costs incurred. Borrowings are subsequently stated at

amortised cost; any differences between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability at least 12 months after the balance date.

l) Seasonality The Group’s revenues and profits are generally evenly distributed throughout the year, hence the results are not subject to

seasonality.



2. Income GROUP

2017 2016 $000 $000

Operating Revenue - Network Charges 20,127 20,105- Fibre Charges 16 21

Other Income - Interest Revenue 276 429- Other Income 1,596 1,606

Total Income 22,015 22,161

3. Expenses

Expenses Include:

Auditors’ Remuneration – PricewaterhouseCoopers - Audit of Financial Report 48 38 - Audit of Default Price Path 27 23 - Audit of Regulatory Disclosures 29 30

Depreciation - Fibre Assets 41 35 - Metering Assets 352 309 - Network Assets 3,402 3,223

Total Depreciation 3,795 3,567

Directors’ Fees 172 165

Interest Expense 3,258 1,956

Loss on Disposal of Property, Plant and Equipment 403 556

Network Costs 8,129 7,555

Transmission Costs 6,592 5,975


4. Taxation

Current taxCurrent tax expense is the expected tax payable on the taxable income for the year.

Current tax for the current and prior periods is classified as a current liability to the extent that it is unpaid. Amounts paid in excess of amounts owed are classified as a current asset.

Deferred tax Deferred tax expense arises from the origination and reversal of temporary differences.

GROUP

Note 2017 2016 $000 $000

Operating Surplus Before Income Tax 8,875 9,924Prima Facie Taxation at 28% 2,485 2,779Income Not Taxable - Equity Accounting Earnings of Associates and Joint Ventures (173) (305)Loss Offset (Utilised) (280) (210)Under/(over) provision in Prior Years (207) (89)Expenses not Deductible (Allowed Deduction) 20 (18)

Taxation Expense for Year 1,845 2,157

Made up of: Current Tax 1,759 2,295Prior year under/(over) provision of current tax (188) (212)Deferred Tax (13) 293 (49)Prior year under/(over) provisions of deferred tax (19) 123

Taxation Expense for Year 1,845 2,157

Effective Tax Rate 20.8% 21.7%

Tax Losses Transferred Within the GroupThe current tax expense is calculated on the assumption that:

• Tax losses of $1,000,000 (2016: $1,613,549) with a tax benefit of $280,000 (2016: $451,794) have been transferred from Invercargill City Holdings Ltd Group by way of group loss offset.




5. Equity

The authorised and issued share capital comprises 13 million ordinary shares (2016: 13 million ordinary shares) which are fully paid up and are not subject to a par value. All shares have the same rights and privileges.

GROUP

2017 2016 $000 $000

Contributed Capital Share Capital 13,000 13,000

Reserves General Reserve 2,800 2,800 Revaluation Reserve Opening Balance 27,004 27,059Revaluation 1,863 -Revaluation Reversal due to Asset Disposal (100) (55)

Closing Balance 28,767 27,004

Total Reserves 31,567 29,804

Retained Earnings Opening Balance 46,315 44,693Net Surplus 7,030 7,767Revaluation Reversal due to Asset Disposal 100 55Dividend Declared/Paid (5,700) (6,200)

Total Retained Earnings 47,745 46,315

Total Equity 92,312 89,119

Cents per Share Cents per ShareDividend per Share 43.8 47.7

6. Cash and Cash Equivalents

Current Account 30 167Bank Deposits (Short Term) 3,112 40

Total Cash and Cash Equivalents 3,142 207



7. Receivables and Prepayments

GROUP

2017 2016 $000 $000

Trade Debtors 1,993 2,049Prepayments 51 23GST Receivable - 339

Total Receivables and Prepayments 2,044 2,411

Trade and other receivables are stated at their cost less any impairment losses. The carrying amounts of the Group’s receivables are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any indication exists, the receivables’ recoverable amount is estimated.

8. Investments in Associates

Associate Companies Country of Percentage Held Balance Date Incorporation By Group 2017 2016

Electricity Southland Ltd NZ 24.9% 24.9% 31 March

The Share of Surplus Before Tax for the year ended 31 March 2016 included 50% equity accounted share of profits of Otago Power Services Ltd. The remaining 50% shareholding in Otago Power Services Ltd was purchased by PowerNet Ltd on 16 February 2016. Following the completion of the acquisition, Otago Power Services Ltd was amalgamated with PowerNet Ltd on 31 March 2016.

The Group’s share of the results of its equity accounted associate entities is as follows: GROUP

2017 2016 $000 $000

Share of Surplus Before Taxation 108 669Less Taxation Expense (93) (188)

Total Recognised Revenues and Expenses 15 481

The Group’s interests in associate entities are as follows:

Carrying Amount at Beginning of Year 1,554 3,742Total Recognised Revenues and Expenses 15 481Dividends Received/Declared - (500)Disposal of Associates - (2,169)

Carrying Amount at End of Year 1,569 1,554



9. Investment in Joint Ventures

The Group has a participating interest in the following joint ventures through its wholly owned subsidiary Pylon Ltd.

Country of Percentage Held Balance DateJoint Venture Incorporation By Group 2017 2016

PowerNet Ltd Group* NZ 50% 50% 31 MarchOtagoNet Joint Venture** NZ 24.9% 24.5% 31 MarchRoaring Forties Energy Ltd Partnership*** NZ 50% 50% 31 March

*The PowerNet Ltd Group has a 51.7% shareholding in Peak Power Services Ltd.**The Group holds a 25% voting rights over OtagoNet Joint Venture.***Roaring Forties Energy Ltd Partnership has 50% interest in Southern Generation Ltd Partnership.

In April 2015 the Group took a 25% interest in the Southern Generation Ltd Partnership. This partnership was formed to invest in electricity generation opportunities. The partnership owns two wind farms, Mt. Stuart near Lawrence and Flat Hill near Bluff. During the year, the partnership completed the acquisition of the assets relating to the Aniwhenua Hydro Station on the Rangitaiki River in the Bay of Plenty.

Effective from 1 April 2016 the Group has equity accounted its share of profits from the 50% owned joint venture entity, PowerNet Ltd Group at 25%. The change to 25% is consistent with the economic benefits the Group receives based on the PowerNet dividend policy.

The Group’s interests in Joint Venture entities are as follows: GROUP

2017 2016 $000 $000

Carrying Amount at Beginning of Year 54,270 43,950Investments in Joint Ventures 26,325 10,588Total Recognised Revenues and Expenses 6,482 4,384Reversal of Gain on Intragroup Restructure - (2,031)Distributions/Dividends Received (6,235) (2,621)

Carrying Amount at End of Year 80,842 54,270



10. Property, Plant and Equipment

Network Assets Meters Fibre Total $000 $000 $000 $000

Cost or Valuation Balance at 1 April 2015 89,650 4,750 906 95,306Additions 5,799 2,364 69 8,232Disposals (134) (2,036) - (2,170)

Balance at 31 March 2016 95,315 5,078 975 101,368

Balance at 1 April 2016 95,315 5,078 975 101,368Additions 4,134 1,556 78 5,768Revaluation 251 - - 251Disposals (339) (548) - (887)

Balance at 31 March 2017 99,361 6,086 1,053 106,500

Depreciation and Impairment Losses Balance at 1 April 2015 12,228 3,054 105 15,387Depreciation for Year 3,223 309 35 3,567Disposals (52) (1,553) - (1,605)

Balance at 31 March 2016 15,399 1,810 140 17,349

Balance at 1 April 2016 15,399 1,810 140 17,349Depreciation for Year 3,402 352 41 3,795Revaluation (2,337) - - (2,337)Disposals (83) (393) - (476)

Balance at 31 March 2017 16,381 1,769 181 18,331

Carrying Amount/Book Value

Book Value 31 March 2016 79,916 3,268 835 84,019

Book Value 31 March 2017 82,980 4,317 872 88,169

Carrying amounts of property, plant and equipment had they been recognised under the cost model.

31 March 2016 57,399 3,268 835 61,50231 March 2017 58,131 4,472 872 63,475

ValuationThe network assets of Electricity Invercargill Ltd were revalued to fair value using discounted cash flow methodology on 1 April 2016 by Ernst & Young, who is an independent valuer. This resulted in a revaluation movement of $2,588,000.

The following valuation assumptions were adopted;• The free cash flows was based on the company’s three year business plan and asset management plan adjusted for non-recurring or

non-arms length transactions and for transactions that arise from expansionary growth in the network after the date of the valuation.• The corporate tax rate used was 28%.• The weighted average cost of capital (WACC) used was 5.5%.• The sustainable growth adjustment used was 0%.



11. Creditors and Accruals

GROUP

Note 2017 2016 $000 $000

Trade Payables 1,510 3,867Accruals 1,093 1,180Revenue in Advance 32 90GST Payable 62 -

Total Creditors and Accruals 2,697 5,137

12. Shareholder Advance

Invercargill City Holdings Ltd - Non Current Portion 67,825 40,500

Total Shareholder Advance 67,825 40,500

The Electricity Invercargill Ltd’s (EIL) shareholder Invercargill City Holdings Ltd (ICHL) provides all loan facilities for companies in the ICHL Group including EIL. Costs incurred by ICHL on their borrowings and facilities are passed directly through to EIL.

A new general facility agreement for $42 million was entered into with ICHL on 30 June 2016, for a two year term and is extended by one year unless notice is given. ICHL has confirmed that the amounts owing under the existing general facility are not payable for 13 months.

The weighted average interest rate for the loan excluding facility fee is 4.78% (2016: 6.06%)

13. Deferred Tax Liabilities

Balance at the Beginning of the Year 17,971 17,898Charged to the Profit and loss (4) - Temporary Difference Reversals - Depreciation 288 (17)- Temporary Difference Reversals - Other (14) 90

Charged to Equity - Effect of Revaluation 725 -

Balance at the End of the Year 18,970 17,971

The primary component of the deferred tax balance is related to software, property, plant and equipment.

There is not expected to be any significant reversal of deferred taxation in the next 12 months.



14. Reconciliation of Net Surplus After Taxation with Net Operating Cash Flows

The following is a reconciliation between the Net Surplus After Taxation shown in the Statement of Financial Performance and the Net Cash Flows From Operating Activities.

GROUP

2017 2016 $000 $000


Plus/(Less) Non Cash Items: Depreciation 3,795 3,567Deferred Taxation 274 74Loss on Sale of Property, Plant and Equipment 403 556Share of (Profit)/Loss of Associates and Joint Ventures (6,497) (4,865)

(2,025) (668)

Plus/(Less) Movements in Working Capital: Increase/(Decrease) in Payables and Accruals (2,440) (1,215)(Increase)/Decrease in Receivables 366 (310)Increase/(Decrease) in Provision for Taxation (489) (215)

(2,563) (1,740)

Net Cash Flows From Operating Activities 2,442 5,359

15. Commitments

Capital CommitmentsThe Group has capital expenditure contracted for but not provided for in the financial statements.

Capital Commitments 1,659 1,686

Total Capital Commitments 1,659 1,686

16. Contingent Liabilities

The Company has a contingent liability as at 31 March 2017 of $415,000 (31 March 2016: $415,000). This liability relates to an agreement with Smart Co for the Company to provide a subordinated loan to Smart Co once a number of terms have been met.



17. Financial Instruments

The Group has exposure to the following risks from its use of financial instruments:• Credit risk• Liquidity risk• Market risk

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.

Credit RiskFinancial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and short-term investments and trade receivables. Cash and short-term investments are placed with banks with high credit ratings assigned by international credit-rating agencies, or other high credit quality financial institutions.

The Group manages its exposure to credit risk from trade receivables by performing credit evaluations on all customers requiring credit whenever possible, and continuously monitoring the outstanding credit exposure to individual customers. The Group does not generally require or hold collateral against credit risk.

The Group is exposed to a concentration of credit risk with regards to the amounts owing by energy retailers for line charges. However, these entities are considered to be high credit quality entities.

The Company is exposed to a concentration of credit risk with regard to the amounts owing by related parties at balance date as disclosed in Note 18 Transactions with Related Parties. However, these entities are considered to be high credit quality entities.

Liquidity RiskLiquidity risk represents the Group’s ability to meet its contractual obligations.

The Group evaluates its liquidity requirements on an ongoing basis. In general the Group generates sufficient cash flows from its operating activities to meet its contractual obligations arising from its financial liabilities and has credit lines in place to cover potential shortfalls.

Market RiskMarket risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments.

The Group has interest bearing debt which is subject to interest rate variations in the market. This debt (being an advance from the Group’s parent company, Invercargill City Holdings Ltd) is partially hedged and managed by the Group’s parent company, thus reducing the Group’s exposure to interest rate variation.

Sensitivity Analysis for Interest Rate ChangeThe Group is subject to exposure to interest rate variations through both its cash and short-term investments and loans.

An increase/(decrease) in the interest rate of 1% is estimated to increase/(decrease) the net profit before tax and equity by $65,000 (2016: $74,000).

Fair ValueThe estimated fair values of the Group’s financial instruments are represented by the carrying values.

Capital ManagementThe Group’s capital includes share capital, reserves and retained earnings. The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position.

The Group is not subject to any externally imposed capital requirements.



18. Transactions with Related Parties

Electricity Invercargill Ltd is 100% owned by Invercargill City Holdings Ltd. Invercargill City Holdings Ltd is a wholly owned subsidiary of the Invercargill City Council.

Electricity Invercargill Ltd has an interest in the PowerNet Ltd joint venture, OtagoNet Joint Venture, Electricity Southland Ltd and Southern Generation Ltd Partnership through their wholly owned subsidiary Pylon Ltd and Peak Power Services Ltd through PowerNet Ltd.

Otago Power Services Ltd was purchased by PowerNet Ltd in February 2016 and amalgamated with PowerNet Ltd on 31 March 2016.

All transactions between Electricity Invercargill Ltd and related parties relate to the normal trading activities of Electricity Invercargill Ltd.

No related party debts have been written off or forgiven during the period.

Material transactions Electricity Invercargill Ltd has had with the above-mentioned parties during the year are as follows:

GROUP

2017 2016 $000 $000

Goods and Services Supplied to: PowerNet Ltd (Joint Venture) 160 245Electricity Southland Ltd (Associate) 87 71Otago Power Services Ltd (Associate) - 33OtagoNet Joint Venture Ltd (Joint Venture) - 14

Receivables Outstanding at Balance Date PowerNet Ltd (Joint Venture) 34 76Electricity Southland Ltd (Associate) 24 19Otago Power Services Ltd (Associate) - -OtagoNet Joint Venture Ltd (Joint Venture) - -

Goods and Services Supplied by: PowerNet Ltd (Joint Venture) 8,931 11,042Invercargill City Holdings Ltd (Other Related Party) 3,638 2,334

Creditors Outstanding at Balance Date PowerNet Ltd (Joint Venture) 1,029 3,545Invercargill City Holdings Ltd (Other Related Party) 298 178

Dividends Paid to: Invercargill City Holdings Ltd (Other Related Party) 6,200 5,600

Advances Provided to (Repaid by): PowerNet Ltd (Joint Venture) (356) 3,667Electricity Southland Ltd (Associate) 883 600Otago Power Services Ltd (Associate) - (2,296)OtagoNet Joint Venture Ltd (Joint Venture) - (825)

Advances Provided from: Invercargill City Holdings Ltd (Other Related Party) (27,325) (9,000)



18. Transactions with Related Parties continued

Other Related PartiesThere have been no material transactions with Directors with the exception of the following:

Electricity Invercargill Ltd, through its joint venture interest in PowerNet Ltd and OtagoNet Joint Venture uses AWS Legal as its solicitors, of which Alan Harper is a Partner. Electricity Invercargill Ltd’s share of fees paid to AWS Legal during the year amounted to $8,000 (2016: $41,000) of which $0 (incl GST) (2016: $0 (incl GST)) is owing at balance date.

All transactions between PowerNet Ltd, OtagoNet Joint Venture, Electricity Invercargill Ltd and AWS Legal relate to normal trading activities.

Key Management PersonnelThe compensation of the directors and executives, being the key management personnel of the entity is set out below:

GROUP

2017 2016 $000 $000

Salaries and Short-term Employee Benefits 202 189

Executive staff remuneration comprises salary and other short-term benefits. PowerNet executives appointed to the boards of related companies do not receive directors’ fees personally.

19. Subsequent Events

There are no material subsequent events that have arisen since the end of the financial year to the date of this report.


Audit Report

PricewaterhouseCoopersPwC Centre60 Cashel StreetPO Box 13244Christchurch 8013New ZealandTelephone +64 3 374 3000Facsimile +64 3 374 3001www.pwc.co.nzIndependent Auditors’ Report

To the Readers of Electricity Invercargill Limited’s Group Financial Statements

and Performance Information for the year ended 31 March 2017

The Auditor-General is the auditor of Electricity Invercargill Limited Group (the Group). The Auditor-General has appointed me, Nathan Wylie, using the staff and resources of PricewaterhouseCoopers, to carry out the audit of the financial statements and the performance information of the Group on his behalf.

Opinion on the financial statements and the performance information

We have audited:

- the financial statements of the Group on pages 13 to 34, that comprise the statement of financial position as at 31 March 2017, the statement of financial performance, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information; and

- the performance information of the Group on pages 12 to 13.

In our opinion:

- the financial statements of the Group:

- present fairly, in all material respects:

- its financial position as at 31 March 2017; and

- its financial performance and cash flows for the year then ended; and

- comply with generally accepted accounting practice in New Zealand in accordance with New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime.

- the performance information of the Group presents fairly, in all material respects, the Group’s achievements measured against the performance targets adopted for the year ended 31 March 2017.

Our audit was completed on 29 June 2017. This is the date at which our opinion is expressed.

The basis for our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities relating to the financial statements and the performance information, we comment on other information, and we explain our independence.

Basis for our opinionWe carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report.

We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.


Responsibilities of the Board of Directors for the financial statements and the performance informationThe Board of Directors is responsible on behalf of the Group for preparing financial statements that are fairly presented and that comply with generally accepted accounting practice in New Zealand.

The Board of Directors is also responsible on behalf of the Group for preparing performance information that is fairly presented.

The Board of Directors is responsible for such internal control as it determines is necessary to enable it to prepare financial statements and performance information that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements and the performance information, the Board of Directors is responsible on behalf of the Group for assessing the company’s ability to continue as a going concern. The Board of Directors is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

The Board of Directors’ responsibilities arise from the Energy Companies Act 1992.

Responsibilities of the auditor for the audit of the financial statements and the performance informationOur objectives are to obtain reasonable assurance about whether the financial statements and the performance information, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit carried out in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts or disclosures, and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers taken on the basis of these financial statements and performance information.

For the budget information reported in the financial statements and performance information, our procedures were limited to checking that the information agreed to the company’s statement of corporate intent.

We did not evaluate the security and controls over the electronic publication of the financial statements and the performance information.

As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. Also:

- We identify and assess the risks of material misstatement of the financial statements and the performance information, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

- We evaluate the appropriateness of the reported performance information within the Group’s framework for reporting its performance;

- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

- We conclude on the appropriateness of the use of the going concern basis of accounting by the Board of Directors and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements and performance information or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

Audit Report continued


Back cover photos: Top: PowerNet staff working on the EIL network.

Bottom: L/R – Sarah Brown, PowerNet (director), Robin Eustace, St John (territory manager), Joc O’Donnell, Bill Richardson Transport World (executive director) and Tim Brown, PowerNet (chief information officer).

Audit Report continued

- We evaluate the overall presentation, structure and content of the financial statements and the performance information, including the disclosures, and whether the financial statements and the performance information represent the underlying transactions and events in a manner that achieves fair presentation.

- We obtain sufficient appropriate audit evidence regarding the financial statements of the entities or business activities within the Group to express an opinion on the consolidated financial statements and performance information. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Our responsibilities arise from the Public Audit Act 2001.

Other InformationThe Board of Directors is responsible for the other information. The other information comprises the information included on pages 1 to 11, but does not include the financial statements and the performance information, and our auditor’s report thereon.

Our opinion on the financial statements and the performance information does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon.

In connection with our audit of the financial statements and the performance information, our responsibility is to read the other information. In doing so, we consider whether the other information is materially inconsistent with the financial statements and the performance information or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on our work, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

IndependenceWe are independent of the Group in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board.

In addition to the audit, and our role as auditors of its associates and joint ventures, we have carried out assignments in the areas of compliance with the Electricity Distribution (Information Disclosure) Determination 2012, Electricity Distribution Services Default Price-Quality Path Determination 2015 and other regulatory requirements of the Commerce Act 1986, which are compatible with those independence requirements. Other than the audit and these assignments, we have no relationship with, or interests in, the Company or any of its associates or joint ventures.

Nathan WyliePricewaterhouseCoopersOn behalf of the Auditor-GeneralChristchurch, New Zealand

Electricity Invercargill Ltd

Documents

Electricity Invercargill Ltd - · PDF fileElectricity Invercargill Limited ANNUAL REPORT 2017 1 About Electricity Invercargill Ltd Electricity Invercargill Ltd (EIL) is one of the